Ginnie Mae is allowing lenders to securitize modified home loans with terms of up to 40 years as the Biden administration works to make more housing options available for struggling borrowers.
The new pool type will allow Ginnie issuers to offer loan modifications that carry a lower monthly payment than a 30-year mortgage, while retaining the ability to securitize the loans for sale into the secondary market.
Ginnie expects the new pools to be ready for use by October, but their extended term modifications would still have to be authorized by the Federal Housing Administration and other agencies whose programs are the basis for the loans in Ginnie Mae pools.
“It’s important that Ginnie Mae issuers have secondary market liquidity for options that our agency partners determine are appropriate for supporting homeowners in distress,” Michael Drayne, Ginnie’s acting executive vice president, said in a press release.
Ginnie Mae has been part of a number of interagency actions to prevent foreclosure for homeowners experiencing financial hardship as a result of COVID-19.
The announcement comes a day after Presiden Biden nominated
“The challenges of the last year require meaningful solutions to help keep people in their homes,” said Alanna McCargo, senior advisor to HUD Secretary Marcia Fudge, said in the release. “Today’s step by Ginnie Mae demonstrates a commitment to a more balanced and equitable housing finance system and demonstrates the critical role the agency plays in supporting government mortgage programs in the secondary market.”
Other HUD agencies that may offer the new pools include the Office of Public and Indian Housing, the Department of Veterans Affairs and the U.S. Department of Agriculture Rural Development.
Ginnie said there will be no restrictions on loan amounts in the pools as long as the eligible collateral meets the requirements set forth in guidance by each participating agency. The modified loans must have terms greater than 30 years, and less than or equal to 40 years. Ginnie also said that all modifications of the pooled loans "must have been occasioned by default or [a] reasonably foreseeable default."
The 40-year pool design gives Ginnie issuers more control and the ability to maximize market pricing, said John Getchis, a senior vice president for capital markets.
“We think the market will find value in securities backed by these loans,” Getchis said in the press release. “We wanted to provide a pooling structure that would enable issuers to capture that value, thereby enhancing their ability to provide the strongest possible options to the homeowners while remaining respectful of investors’ capital."
